Buying a home a better deal than usual, but still costs more

By AUBREY COHEN, SEATTLEPI.COM STAFF

Published 8:29 pm, Monday, January 28, 2013

Photo: Mayra Beltran, Staff

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Recent home price declines, continued low interest rates and rising rents mean the cost of owning a home is lower, relative to renting, than the historical average pretty much everywhere. But renting remains cheaper in many U.S. cities, according to a new report from commercial real estate company information company CoStar Group. Here are the top 20 metro areas where it's cheaper to rent, starting with No. 20 Houston, where renting is 81 percent of the cost of owning, above the historical level of 65 percent and the "tipping point" (where people have tended to move from renting to buying) of 66 percent. less

Recent home price declines, continued low interest rates and rising rents mean the cost of owning a home is lower, relative to renting, than the historical average pretty much everywhere. But renting remains ... more

Photo: Mayra Beltran, Staff

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19. San Antonio: Renting is 79 percent of the cost of owning, above the historical level of 67 percent and the tipping point of 68 percent.

19. San Antonio: Renting is 79 percent of the cost of owning, above the historical level of 67 percent and the tipping point of 68 percent.

Photo: Lisa Krantz, SAN ANTONIO EXPRESS-NEWS

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18. Dallas-Fort Worth: Renting is 78 percent of the cost of owning, above the historical level of 62 percent and the tipping point of 68 percent.

18. Dallas-Fort Worth: Renting is 78 percent of the cost of owning, above the historical level of 62 percent and the tipping point of 68 percent.

Photo: LM Otero

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17. Denver: Renting is 78 percent of the cost of owning, above the historical level of 61 percent and the tipping point of 66 percent.

17. Denver: Renting is 78 percent of the cost of owning, above the historical level of 61 percent and the tipping point of 66 percent.

Photo: Getty Images

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16. Northern New Jersey: Renting is 77 percent of the cost of owning, above the historical level of 57 percent and the tipping point of 60 percent.

16. Northern New Jersey: Renting is 77 percent of the cost of owning, above the historical level of 57 percent and the tipping point of 60 percent.

Photo: Bill Kostroun

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15. San Diego: Renting is 74 percent of the cost of owning, above the historical level of 51 percent and the tipping point of 59 percent.

15. San Diego: Renting is 74 percent of the cost of owning, above the historical level of 51 percent and the tipping point of 59 percent.

Photo: Gregory Bull

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14. Seattle: Renting is 74 percent of the cost of owning, above the historical level of 55 percent and the tipping point of 60 percent.

14. Seattle: Renting is 74 percent of the cost of owning, above the historical level of 55 percent and the tipping point of 60 percent.

Photo: JOSHUA TRUJILLO

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13. Tampa: Renting is 74 percent of the cost of owning, above the historical level of 56 percent and the tipping point of 56 percent.

13. Tampa: Renting is 74 percent of the cost of owning, above the historical level of 56 percent and the tipping point of 56 percent.

Photo: BRENDAN SMIALOWSKI

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12. Charlotte, N.C.: Renting is 73 percent of the cost of owning, above the historical level of 59 percent and the tipping point of 60 percent.

12. Charlotte, N.C.: Renting is 73 percent of the cost of owning, above the historical level of 59 percent and the tipping point of 60 percent.

Photo: Chuck Burton, AP

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11. Oklahoma City: Renting is 73 percent of the cost of owning, above the historical level of 56 percent and the tipping point of 57 percent.

11. Oklahoma City: Renting is 73 percent of the cost of owning, above the historical level of 56 percent and the tipping point of 57 percent.

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10. Raleigh, N.C.: Renting is 72 percent of the cost of owning, above the historical level of 54 percent and the tipping point of 47 percent.

10. Raleigh, N.C.: Renting is 72 percent of the cost of owning, above the historical level of 54 percent and the tipping point of 47 percent.

Photo: Twbuckner/flickr

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9. Fort Lauderdale: Renting is 71 percent of the cost of owning, above the historical level of 54 percent and the tipping point of 59 percent.

9. Fort Lauderdale: Renting is 71 percent of the cost of owning, above the historical level of 54 percent and the tipping point of 59 percent.

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8. San Francisco: Renting is 68 percent of the cost of owning, above the historical level of 43 percent and the tipping point of 45 percent.

8. San Francisco: Renting is 68 percent of the cost of owning, above the historical level of 43 percent and the tipping point of 45 percent.

Photo: Paul Chinn, The Chronicle

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7. Austin, Texas: Renting is 68 percent of the cost of owning, above the historical level of 58 percent and the tipping point of 60 percent. The Texas governor's mansion, shown here, is not for rent or sale.

7. Austin, Texas: Renting is 68 percent of the cost of owning, above the historical level of 58 percent and the tipping point of 60 percent. The Texas governor's mansion, shown here, is not for rent or sale.

Photo: Johnny Hanson

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6. Palm Beach County, Fla.: Renting is 67 percent of the cost of owning, above the historical level of 49 percent and the tipping point of 52 percent. Here's the house Bill Gates reportedly rented for $600,000 per month when his daughter competed in a 12-week-long equestrian competition in West Palm Beach. less

6. Palm Beach County, Fla.: Renting is 67 percent of the cost of owning, above the historical level of 49 percent and the tipping point of 52 percent. Here's the house Bill Gates reportedly rented for $600,000 ... more

Photo: Courtesy Realtor.com

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5. San Jose, Calif.: Renting is 63 percent of the cost of owning, above the historical level of 42 percent and the tipping point of 45 percent.

5. San Jose, Calif.: Renting is 63 percent of the cost of owning, above the historical level of 42 percent and the tipping point of 45 percent.

Photo: Kurt Rogers, The Chronicle

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4. Orange County, Calif.: Renting is 63 percent of the cost of owning, above the historical level of 48 percent and the tipping point of 51 percent.

4. Orange County, Calif.: Renting is 63 percent of the cost of owning, above the historical level of 48 percent and the tipping point of 51 percent.

Photo: Mindy Schauer, AP

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3. Portland, Ore.: Renting is 63 percent of the cost of owning, above the historical level of 51 percent and the tipping point of 54 percent. If you're looking to buy, you can do it with your real estate agent by bike. less

3. Portland, Ore.: Renting is 63 percent of the cost of owning, above the historical level of 51 percent and the tipping point of 54 percent. If you're looking to buy, you can do it with your real estate agent ... more

Photo: Associated Press

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2. Miami: Renting is 60 percent of the cost of owning, above the historical level of 50 percent and the tipping point of 59 percent.

2. Miami: Renting is 60 percent of the cost of owning, above the historical level of 50 percent and the tipping point of 59 percent.

Photo: Joe Raedle, Getty Images

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1. East Bay, Calif.: Renting is 56 percent of the cost of owning, above the historical level of 42 percent and the tipping point of 43 percent.

1. East Bay, Calif.: Renting is 56 percent of the cost of owning, above the historical level of 42 percent and the tipping point of 43 percent.

Photo: Paul Chinn, The Chronicle

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In case you were wondering, buying is the biggest bargain in Atlanta, where renting costs 53 percent more (153 percent of the cost to buy), above the historical level of 84 percent and the tipping point of 92 percent. Just behind are Cleveland (renting is 45 percent costlier) and Pittsburgh (36 percent more). less

In case you were wondering, buying is the biggest bargain in Atlanta, where renting costs 53 percent more (153 percent of the cost to buy), above the historical level of 84 percent and the tipping point of 92 ... more

Photo: Getty Images

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Buying a home a better deal than usual, but still costs more

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Buying a home in the Seattle area is a significantly better deal, relative to renting, than usual, according to a new report. But renting is still cheaper.

Average rent in the area is 74 percent of the cost to own, commercial real estate information company CoStar Group says. That's up from a historical level of 55 percent and a "tipping point" (where people tend to move from renting to buying) of 60 percent.

What's going on?

First, while housing prices have started to recover, the typical home in the Seattle area was still worth 26 percent less last October than it was at the peak in July 2007, according to the most-recent report from the S&P/Case-Shiller Home Price Indices. And record-low interest rates make mortgage payments even lower.

For people who have been waiting for home prices to correct, "now is maybe the time to start thinking about taking that risk of re-entering the home-ownership market," said Erica Champion, senior real estate economist at CoStar. "The window of clearance pricing for houses is going to start to close."

In fact, the price of a typical Seattle-area house was up 5.7 percent in September from a year earlier, S&P reported. The median King County house sales price was $380,046 in December, up 18.8 percent from a year earlier, according to the Northwest Multiple Listing Service.

It also could mean that rents are due to plateau, Champion said.

But wait a minute, isn't it still cheaper to rent?

"It is cheaper to rent than own, but the reason why people will rent versus own is not just a financial decision," Champion said. "Its also a life-stage decision."

In other words, people like the security of owning their home, and the ability to paint or knock down a wall.

Also, the mortgage payment won't change, while rents will tend to rise.

Both studies included mortgage payment, interest and real estate taxes. But Trulia also factored in the benefit of the mortgage interest deduction from federal income taxes and home appreciation on the buy side, and the cost of renter's insurance on the rent side, while CoStar did not.

Speaking to the mortgage deduction, Champion said: "It's more about what's your monthly payment going to be, because you don't really get that benefit of getting money back until the following year." She added that the average benefit from the deduction is only about $1,000.

Another big difference is that Trulia assumed a buyer had a 20 percent down payment. On a $400,000 house, that's beyond the means of many first-time buyers.

"That's more of a move-up buyer, not a first-time home buyer down payment," Champion said.

CoStar calculated a 3.5 percent down payment, the minimum required for a Federal Housing Administration loan. That drives up the ownership cost.

Click through the gallery above to see where Seattle ranks in the top 20 cities where renting is cheaper than buying, according to CoStar.